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EXHIBIT (a)(5)(A)
Cause No. GN003141
JAMES F. MARTENS, On Behalf of Himself IN THE DISTRICT COURT OF
and All Others Similarly Situated.
Plaintiff,
TRAVIS COUNTY, TEXAS
vs.
PCORDER.COM, INC., TRILOGY
SOFTWARE INC., ROBERT W. STEARNS,
LINWOOD A. LACY JR., PETER J.
BARRIS, ROSS A. COOLEY AND JOSEPH
A. LIEMANDT, 353 JUDICIAL DISTRICT
Defendants DEMAND FOR JURY TRIAL
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PLAINTIFFS ORIGINAL PETITION
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Pursuant to Rule 190.1 of the Texas Rules of Civil Procedure, plaintiff
would show that discovery is intended to be conducted under Level 3 of this Rule
due to the complexity of this case.
INTRODUCTION
1. This is a class action on behalf of the public stockholders of
pcOrder.com, Inc. ("pcOrder" or the "Company") against pcOrder, its Board of
Directors and Trilogy Software, Inc. ("Trilogy"), arising out of Trilogy's
September 27, 2000 offer to purchase the outstanding shares of pcOrder for
$6.375 per share, via a tender offer (the "Tender Offer").
2. Trilogy Software owns virtually all of pcOrder's outstanding Class B
shares, which shares represent 62% of pcOrder's total outstanding common equity.
Trilogy, through its CEO, defendant Joseph A. Liemandt, is also a director of
pcOrder, and with the assistance of the other Individual Defendants seeks to
obtain control of pcOrder in violation of the Individual Defendants' fiduciary
obligations by, among other things, concealing pcOrder's third quarter results
until after the merger was announced. By concealing this information until the
merger was announced, the Individual Defendants intended to cap the price of
pcOrder stock thus limiting the price that Trilogy would have to pay pcOrder
shareholders for their shares. The Individual Defendants have also
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agreed to several unlawful provisions designed to further ensure that Trilogy is
successful in its efforts to squeeze plaintiff and the Class out of their
holdings of pcOrder. Given pcOrder's $78 million in cash, Trilogy's offer to
acquire the remaining outstanding shares of pcOrder for $40 million actually
represents an offer to purchase the 37.5% equity investment in pcOrder which
Trilogy does not already own for a mere $11 million. By acquiring the remaining
37.5% of pcOrder shares, Trilogy will net approximately $29 million in cash from
the merger. Thus by paying $40 million, or $6.375 per share for pcOrder's 6.5
million outstanding class A shares, Trilogy will obtain pcOrder's current cash
position of $78 million for Trilogy's own uses.
3. Each of the defendants has directly violated and/or aided and abetted
the other defendants' violations of the fiduciary duties owed to the public
shareholders of pcOrder. Absent judicial intervention, the merger will be
consummated which will result in irreparable injury to the plaintiff and the
Class. This action seeks to enjoin defendants' unlawful conduct.
JURISDICTION AND VENUE
4. This Court has jurisdiction over each of the defendants because they
conduct business in, reside in and/or are citizens of Texas. Certain of the
defendants are residents and citizens of Texas, including defendants Joseph A.
Liemandt, Robert W. Stearns and Ross A. Cooley, and pcOrder and Trilogy, which
have their principal places of business in the State of Texas. Moreover, many
of the defendants reside in this county and the conduct at issue took place in
this county. The amount in controversy of plaintiff's claim exclusive of
interest and costs is less than $75,000. Venue is proper in this Court because
defendants' wrongful acts arose in and emanated from this county.
PARTIES
5. Plaintiff James F. Martens at all times relevant hereto has been a
stockholder of pcOrder. Plaintiff is a resident of Travis County, Texas.
6. Defendant pcOrder is a Delaware corporation with its principal
executive offices located at 5001 Plaza on the Lake, Austin, Texas 78746.
pcOrder's common shares are publicly traded on the NASDAQ. pcOrder has over 6.5
million shares outstanding held by hundreds if not thousands of shareholders.
pcOrder may be served with process through its President, Christina Jones, at
5001 Plaza on the Lake, Austin, Texas 78746.
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7. Defendant Robert W. Stearns is a director of the Company. Stearns is
also a Managing Director of Sternhill Partners, and may be served with process
at 777 Post Oak Blvd., #250, Houston, Texas 77056.
8. Defendant Linwood A. Lacy, Jr. is a director of the Company. Lacy is
also the Chairman of the Board of Directors of Shopping4Sure.com and may be
served with process at 6 Cambridge Drive, Trumbull, Connecticut 06611.
9. Defendant Peter J. Barris is a director of the Company. Barris is
also the Managing General Partner of New Enterprise Associates and may be served
with process at 11951 Freedom Drive, Suite 1240, Reston, Virginia 20190.
10. Defendant Ross A. Cooley is Chairman, Chief Executive Officer and a
director of the Company. Cooley may be served with process at the Company, 5001
Plaza on the Lake, Austin, Texas, 78746.
11. Defendant Joseph A. Liemandt is the Chairman of the Board, CEO and the
Founder of Trilogy. Liemandt is also a director of pcOrder. Liemandt may be
served with process at Trilogy, 6034 W. Courtyard Drive, Austin, Texas 78730.
12. The defendants named in 11 are sometimes collectively referred to
herein as the "Individual Defendants."
13. Defendant Trilogy Software, Inc. is an Austin-based software company
and controlling shareholder of pcOrder. Trilogy may be served with process
through its CEO, Joseph A. Liemandt, 6034 W. Courtyard Drive, Austin, Texas
78730.
14. By virtue of their positions as directors and/or officers of pcOrder,
the Individual Defendants have, and at all relevant times had, the power to
control and influence, and did control and influence and cause pcOrder to engage
in the practices complained of herein.
FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
15. By reason of the above Individual Defendants' positions with the
Company as officers and/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public stockholders of pcOrder and owe
plaintiff and the other members of the Class a duty of highest good faith, fair
dealing, loyalty and full, candid and adequate disclosure.
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16. Each of the Individual Defendants is required to act in good faith, in
the best interests of a corporation's shareholders and with such care, including
reasonable inquiry, as would be expected of an ordinarily prudent person. In a
situation where the directors of a publicly traded company undertake a
transaction that may result in a change in corporate control (particularly when
it involves a decision to eliminate the shareholders' equity investment in a
company), the applicable state law requires the directors to take all steps
reasonably required to maximize the value shareholders will receive rather than
use a change of control to benefit themselves. To diligently comply with this
duty, the directors of a corporation may not take any action that:
(a) adversely affects the value provided to the corporation's
shareholders;
(b) contractually prohibits them from complying with or carrying
out their fiduciary duties;
(c) discourages or inhibits alternative offers to purchase control
of the corporation or its assets; or
(d) will otherwise adversely affect their duty to search and secure
the best value reasonably available under the circumstances for the
corporation's shareholders.
17. As described herein, the Individual Defendants have breached their
fiduciary duties by taking actions designed to deter higher offers from other
potential acquirers so as to ensure the defendants receive hundreds of thousands
of dollars in personal benefits at the expense of pcOrder's shareholders.
Defendants cannot possibly fulfill their fiduciary obligations after
implementing provisions which disable them from maximizing shareholder value.
The Individual Defendants have breached their fiduciary obligation to act
reasonably.
CLASS ACTION ALLEGATIONS
18. Plaintiff brings this action pursuant to Rule 42 of the Texas Rules of
Civil Procedure on his own behalf and as a class action on behalf of all holders
of pcOrder common stock, who are being and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are defendants herein and
any person, firm, trust, corporation, or other entity related to or affiliated
with any defendants.
19. This action is properly maintainable as a class action.
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20. The Class is so numerous that joinder of all members is impracticable.
There are over 6.5 million shares of pcOrder stock issued. The shares trade on
the NASDAQ and thousands of pcOrder stockholders of record are located
throughout the United States.
21. Questions of law and fact are common to the Class and predominate over
questions affecting any individual Class members. The common questions include,
inter alia, the following:
(a) whether the defendants breached their fiduciary duties of care,
loyalty and/or candor owed by them to plaintiff and the other members of the
Class in connection with the proposed sale of pcOrder;
(b) whether the defendants have breached their fiduciary duty to
secure and obtain the best price reasonable under the circumstances for the
benefit of plaintiff and the other members of the Class in connection with the
proposed sale of pcOrder;
(c) whether the defendants have, in bad faith or for improper
motives, erected and/or retained barriers to discourage other offers for the
Company or its assets;
(d) whether plaintiff and the other members of the Class would be
irreparably damaged were the provisions and conduct detailed herein allowed to
persist; and
(e) whether the compensation to be paid to plaintiff and the Class is
unfair and inadequate.
22. The defendants have acted or refused to act on grounds generally
applicable to the Class thereby making appropriate final injunctive relief with
respect to the Class as a whole.
23. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of the other members of the Class and
plaintiff has the same interests as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
24. Plaintiff anticipates that there will be no difficulty in the
management of this litigation as a class action.
25. For the reason stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy.
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BACKGROUND TO PROPOSED MERGER
26. pcOrder offers partners a database of more than 100,000 products,
including IT, consumer electronics and office products. The detailed product
content includes technical specifications and product attributes, marketing text
and product images. Value added services available through pcOrder's Content
Source include expert reviews and product rebate information. Tailored to the IT
industry, Content Source is designed to convert browsers into buyers by
supplying comprehensive product information in one location at the point of
sale. In essence, pcOrder's e-commerce platform allows major industry players to
streamline their distribution channels and develop new business models. In 1999
alone, the Company's software and content was used by more than 19,000 product
sales representatives from more than 4,400 reseller organizations. In February
1999, pcOrder went public selling 2.2 million shares to the public for total
proceeds of 43 million. By December 1999, pcOrder's shares had reached new
heights, trading above $50 per share. Defendants caused pcOrder to sell 3
million shares, raising approximately $150 million in a secondary offering at
$53.31 per share. In the months that followed, the defendants stopped their
practice of issuing numerous positive statements to securities analysts and
investors as had been pcOrder's' practice since going public in 1999. Although,
shareholders anxiously awaited the release of pcOrder's third quarter results,
the defendants knew that if they were to disclose pcOrder's third quarter
results prior to the announcement of the merger, Trilogy would be forced to pay
a substantially higher price for pcOrder shares. In fact, defendants knew,
unbeknownst to pcOrder shareholders, that pcOrder's third quarter (which ended
September 30, 2000) had ended on an extremely positive note. pcOrder's gross
margins jumped to 46.8% from 39.9%, DSOs improved dramatically dropping from 68
to 48, and deferred revenue increased 83.1% to $21.6 million. Operating margins
had also improved as the Company cut sales and marketing expenses by 39%,
research and development expenses by 9%, and G&A expenses by 8%, sequentially.
27. At the time of the announcement of the merger, Trilogy owned
virtually all of pcOrder's outstanding Class B stock, which represents 62% of
pcOrder's total outstanding common stock. Trilogy, through its CEO, defendant
Liemandt, was also a director of pcOrder, and with the assistance of the
Individual Defendants sought to obtain control of pcOrder at an artificially
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depressed price and did so by, among other things, concealing pcOrder's third
quarter results until after the merger was announced. By concealing this
information until the merger was announced, the defendants would effectively be
able to cap the price of pcOrder stock, thus limiting materially the price that
would be paid to pcOrder shareholders for their shares. With Trilogy already
owning 62.5% of pcOrder, including 62.5% of pcOrder's $78 million in cash,
Trilogy's $40 million offer to acquire the remaining outstanding shares of
pcOrder effectively represents an offer to purchase the balance of the Company's
37.5% equity interest for just $11 million.
THE PROPOSED MERGER
28. On October 25, 2000, pcOrder announced its Q3 2000 results and the
terms of the merger. The release stated:
pcOrder.com Inc. today announced financial results for the quarter and
nine months ended September 30, 2000. pcOrder announced under a separate
press release that Trilogy Software, Inc. and pcOrder have entered into
a definitive agreement under which Trilogy will commence a cash tender
offer to acquire all of pcOrder's outstanding Class A Common Stock.
pcOrder reported third quarter revenues of $13.4 million, representing 3
percent growth when compared to revenues for the same period last year
and a 13 percent decline from the prior quarter. Software and
subscriptions revenues totaled $6.9 million and content and services
revenues totaled $6.5 million for the quarter. Approximately $1.4
million of the software and subscriptions revenues came from non-
recurring license and subscription revenues, primarily related to
contracts terminated during the quarter. In addition, approximately $1.2
million of the content and services revenues came from non-recurring
consulting services rendered to its affiliate, Trilogy.
pcOrder reported a net loss of $0.2 million or $0.01 per share for the
third quarter compared with a net loss of $0.7 million or $0.05 per
share for the same period in 1999. Excluding the non-recurring software
and services revenues recorded during the quarter, the Company's net
loss would have totaled approximately $2.8 million or $0.17 per share
for the quarter. Fourth quarter revenues are expected to decline below
$10 million.
For the nine months ended September 30, 2000, revenues totaled $44.1
million versus $29.6 million for the same period last year. pcOrder also
reported a net loss of $4.8 million or $0.29 per share for the nine
months ended September 30, 2000. This compares with a net loss of $6.5
million or $0.43 per share for the same period in 1999.
29. On the same day, pcOrder announced it had signed a merger agreement
with Trilogy, stating:
Trilogy Software, Inc. and pcOrder.com Inc. today jointly announced that
they have signed a definitive merger agreement under which Trilogy will
commence a cash
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tender offer to acquire all of pcOrder's outstanding Class A common stock at a
price of $6.375 per share. Any shares of pcOrder's Class A common stock not
purchased in the tender offer will be acquired by Trilogy in a subsequent merger
transaction at the same $6.375 per share cash price. Trilogy currently owns all
of pcOrder's outstanding Class B common stock, which represents 62.5% of
pcOrder's outstanding common stock.
The Board of Directors of pcOrder approved the merger agreement and
tender offer based upon the recommendation of pcOrder's Special Committee
comprised of pcOrder's two independent directors. The Special Committee has
received an opinion of their financial advisors, Dain Rauscher Wessels, that the
consideration to be received by the stockholders of pcOrder (other than Trilogy
or its affiliates) pursuant to the merger agreement is fair to such stockholders
from a financial point of view.
Trilogy has been advised by SG Cowen Securities Corporation with respect
to the transaction.
The tender offer will commence on or prior to November 6, 2000, and will
be made only by an offer to purchase and other offering documents, copies of
which will be filed with the Securities and Exchange Commission and mailed to
pcOrder stockholders.
CAUSE OF ACTION
Breach of Fiduciary Duty of Loyalty
and Due Care Against All Defendants
30. Plaintiff repeats and realleges each allegation set forth herein.
31. The Individual Defendants have thus far failed to announce active
auction, open bidding or other procedures best calculated to maximize
shareholder value. Instead of attempting to obtain the highest price reasonably
available for pcOrder's shareholders, the defendants have taken actions in
violation of applicable state law which will only serve their own interests
and/or the interests of pcOrder's largest shareholder, while inhibiting the
maximization of shareholder value.
32. The Individual Defendants were and are under a duty:
(a) to fully inform themselves of the market value of pcOrder
before taking, or agreeing to refrain from taking, action;
(b) to act in the interests of the equity owners;
(c) to maximize shareholder value;
(d) to obtain the best financial and other terms when the Company's
independent existence will be materially altered by a transaction; and
(e) to act in accordance with their fundamental duties of due care
and loyalty.
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33. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme, or in breach
of their fiduciary duties to plaintiff and the other members of the Class, are
implementing and abiding by a process that will deprive plaintiff and other
members of the Class of the true value of their investment in pcOrder.
34. pcOrder shareholders will, if defendants' actions are allowed to
stand, be deprived of the opportunity for substantial gains the plaintiff and
Class members may realize if an active auction or open bidding process is
allowed to occur.
35. By reason of the foregoing acts, practices and course of conduct, the
defendants failed to exercise ordinary care and diligence in the exercise of
their fiduciary obligations toward plaintiff and the other pcOrder public
stockholders and were assisted in that failure by Trilogy which knowingly
assisted defendants' wrongful acts.
36. In light of the foregoing, plaintiff demands that the Individual
Defendants, as their fiduciary obligations require, immediately rescind all
agreements to pay defendants any "change of control" benefits or payments.
37. As a result of these defendants' failure to take such steps to date,
plaintiff and the other members of the Class have been and will be damaged in
that they have been and will be prevented from obtaining a fair price for their
shares.
38. Defendants are not acting in good faith toward plaintiff and the other
members of the Class, and have breached and are continuing to breach their
fiduciary duties to plaintiff and the members of the Class.
39. As a result of defendants' unlawful actions, plaintiff and the other
members of the Class will be irreparably harmed in that they will not receive
fair value for pcOrder's assets and business. Unless the defendants' actions
are enjoined by the Court, defendants will continue to breach their fiduciary
duties owed to plaintiff and the members of the Class, and will engage in a
process that inhibits the maximization of shareholder value.
40. Plaintiff and the other members of the Class have no adequate remedy
at law.
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PRAYER
WHEREFORE, plaintiff demands judgment and preliminary and permanent relief,
including injunctive relief, in plaintiff's favor and in favor of the Class and
against defendants as follows:
A. Declaring that this action is properly maintainable as a class action;
B. Declaring and decreeing that the Trilogy merger agreement was entered
into in breach of the fiduciary duties of the Individual Defendants and is
therefore unlawful and unenforceable;
C. Enjoining defendants from proceeding with the Trilogy merger agreement
and Tender Offer;
D. Enjoining defendants from consummating the merger unless and until the
Company discloses all material facts regarding the merger and implements
procedures to obtain the highest possible price for the Company;
E. Directing the Individual Defendants to exercise their fiduciary duties
to obtain a transaction which is in the best interests of shareholders until the
process for the sale or auction of the Company is completed and the highest
possible price is obtained;
F. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts' fees; and
G. Granting such other and further relief as this Court may deem just
and proper.
JURY DEMAND
Plaintiff demands a trial by jury.
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Respectfully submitted,
BASKIN, BENNETT & KOMKOV, L.L.P.
James D. Baskin III
Leon V. Komkov
919 Congress Avenue, Suite 1000
Austin, TX 78701
Telephone: 512/381-6300
Facsimile: 512/322-9280
By: /s/ James D. Baskin III, by permission Leon Komkov
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James D. Baskin III
State Bar No. 01872050
MILBERG WEISS BERSHAD HYNES & LERACH LLP
William S. Lerach
Darren J. Robbins
Randall H. Steinmeyer
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
Facsimile: 619/231-7423
ATTORNEYS FOR PLAINTIFF
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